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TERA Consultants
32 rue des Jeûneurs
F-75002 PARIS
Tél. + 33 (0) 1 55 04 87 10
Fax. + 33 (0) 1 53 40 85 15
S.A.S. au capital de 200 000 €
RCS Paris B 394 948 731
Confidential
TRA (Telecommunications Regulatory Authority)
2009-32-AF-NG-TRA Oman-Presentation_020908
2 September 2009
Review of Omantel’s
Reference Access OfferFindings and recommendations
Disclaimer: any views or opinions expressed are solely those
of the author and do not necessarily represent those of TRA
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 2 Confidential
The project has consisted in reviewing Omantel’s RAO in 4 main steps, taking into accounts the results of the RAO consultation and the discussions with the market players
Study of the current RAO services and qualification of each service
model
Analyze non-pricing barriers
1. Analyze current RAO service features scope and technical efficiency
2. Retail – wholesale features comparison
3. Reasonableness of RAO requirements
1
2
RAO international best practices benchmark (4 selected countries:
Bahrain, France, Ireland, Gibraltar). 2 additional countries (UK and
Belgium) have been studied for some services
3
Analyze pricing barriers (RAO service pricing)
1. Current Oman’s regulatory framework (Cost based pricing versus retail (prices) minus)
2. Margin squeeze tests modeling
4
0• Analysis of the RAO consultation’s results
• Meetings with the current and potential market players
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 3 Confidential
This presentation is divided into 2 main sections
1. Evolution of the scope of Omantel’s RAO
2. Pricing policy of the RAO services
3. Annexes
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 4 Confidential
In order to clarify the RAO analysis, two categories of services
have been distinguished:
“Resale” services and “Bitstream” services
Incumbent
IncumbentUser
User
Alternative
operator
control
Traffic
+
control
Traffic
+
control
Resale
authentication
centre
Alternative
operator
Bitstream
The alternative operator
• receives both traffic and
control
• designs network services
The alternative operator
• receives only control
• provides only authentication
• does not design network
service
NB: For clarity purpose, the term “Bitstream” is not specific to
broadband services in this presentation, but describes more
widely an arrangement of the type described above
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 5 Confidential
Contents
1. Evolution of the scope of Omantel’s RAO
2. Pricing policy of the RAO services
3. Annexes
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 6 Confidential
Reminder of the RAO existing main services and of the
corresponding retail markets
Heading “Resale” “Bitstream”Corresponding retail
markets
Audiotext service
packageC17 Value added services
CATS C16 International voice
communications
IP Access Service
PackageC18
Internet dial-up servicesWholesale Virtual
Dial Up serviceC20
Wholesale ADSL
serviceC19 Internet broadband services
Voice mail service
package (VMSP)C15
Other services (not in the
scope of the presentation)
X: services provided in
Omantel’s RAO
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 7 Confidential
1 existing main service should be updated and 4 new services
should be added to the RAO
Heading “Resale” “Bitstream”Corresponding retail
markets
Audiotext service package C17 Value added services
CATS Resale C16.1
International voice
communications
CATS Bitstream C16.2
Bitstream Call-by-Call Carrier
selection (CCS)Cxx
Bitstream Carrier Preselection
(CPS)Cyy
IP Access Service Package C18 Internet dial-up
servicesWholesale Virtual Dial Up service C20
Wholesale ADSL Resale service C19.1 Internet broadband
servicesWholesale ADSL Bitstream service C19.2 New
New
New
New
Update
Note: new annex numbers are indicated for illustrative purpose
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 8 Confidential
Contents: Update of the Audiotext service package
HeadingCorresponding retail
markets
Audiotext service package C17 Value added services
CATS Resale C16.1
International voice
communications
CATS Bitstream C16.2
Bitstream Call-by-Call Carrier
selection (CCS)Cxx
Bitstream Carrier Preselection
(CPS)Cyy
IP Access Service Package C18Internet dial-up
servicesWholesale Virtual Dial Up service C20
Wholesale ADSL Resale service C19.1Internet broadband
servicesWholesale ADSL Bitstream service C19.2
Update
C17
Note: new annex numbers are indicated for illustrative purpose
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 9 Confidential
Main players involved in the provision of Value Added
Services (VAS)
Service
provider
VAS numbers:
08xy
3BPQ
Originating
communications
provider
Terminating
communications
provider
1 2 3
Originating communication provider (OCP) refers to the operator who charges the
caller for the call.
Terminating communication provider (TCP) refers to the operator who delivers the
call to the service provider and pays the service provider for the VAS.
Service provider refers to the player who owns the VAS numbers. Content providers
are normally not considered separately from the service provider.
1
2
3
C17
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 10 Confidential
Reminder of the current arrangement set out in the Audiotext
service (C17)
Service
provider
Originating communications
provider
P1: Retail price of the
VAS communication
P1 x (1 - 40%)
40% corresponds to the “billing service” that
includes:
• The billing
• The call origination
P1 P1 x (1-40%)
Debt recovery
company
Debt recovery
agreement
C17
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 11 Confidential
New arrangement proposed for the Audiotext services in Oman
Service
provider
Originating communications
provider
P1: Retail price of the
VAS communication
P1 x (1-X%)
•X% corresponds to the “Invoice” billing service
•This service should be available for any main service
as a RAO ancillary service
P1 P1 x (1-X%)
Call origination
Regulated within RIO
Debt recovery
company
Debt
recovery
agreement
C17
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 12 Confidential
Contents
HeadingCorresponding retail
markets
Audiotext service package C17 Value added services
CATS Resale C16.1
International voice
communications
CATS Bitstream C16.2
Bitstream Call-by-Call Carrier
selection (CCS)Cxx
Bitstream Carrier Preselection
(CPS)Cyy
IP Access Service Package C18Internet dial-up
servicesWholesale Virtual Dial Up service C20
Wholesale ADSL Resale service C19.1Internet broadband
servicesWholesale ADSL Bitstream service C19.2
New
C16.2
Note: new annex numbers are indicated for illustrative purpose
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 13 Confidential
Reminder of the technical chain of the existing service “CATS
Resale” (C16.1)
POI
IICCSP
Calling Card Platform
Service
Access
Number
Omantel NetworkLeased line
Omantel’s responsibility IICCSP’s responsibility
C13: implementation of
number range
C8: leased line
C1: Point of interconnection
C2: Port capacity
C3: Collocation services
Freephone
numberPrepaid
card
International
destinationsC16.1:
Access from Omantel’s network to
the IICCSP platform
International transit
International termination
C16.2
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 14 Confidential
Service
Access
Number
Freephone
number
Technical chain of the new service “CATS Bitstream” (C16.2)
POI
IICCSP
Calling Card
Platform
Service
Access
Number
Omantel NetworkLeased line
Omantel’s responsibility IICCSP’s responsibility
C13:
implementation of
number range
C8: leased line
C1: Point of interconnection
C2: Port capacity
C3: Collocation services
Freephone
numberPrepaid
card
International
destinations
C16.2:
Access from Omantel’s network to
the IICCSP platform
New
The operator
manages himself
International
termination
(See ancillary
services)
New
C16.2
IGW
IGW
International
destinations
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 15 Confidential
Contents
HeadingCorresponding retail
markets
Audiotext service package C17 Value added services
CATS Resale C16.1
International voice
communications
CATS Bitstream C16.2
Bitstream Call-by-Call Carrier
selection (CCS)Cxx
Bitstream Carrier Preselection
(CPS)Cyy
IP Access Service Package C18Internet dial-up
servicesWholesale Virtual Dial Up service C20
Wholesale ADSL Resale service C19.1Internet broadband
servicesWholesale ADSL Bitstream service C19.2
New
New
Note: new annex numbers are indicated for illustrative purpose
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 16 Confidential
Technical chain of the new services “Bitstream” Call-by-Call
Carrier Selection (Cxx) and “Bitstream” Carrier Preselection
(Cyy)
CXX
POIOmantel Network
Omantel’s responsibility CPS operator
responsibility
C8: leased line
C1: Point of interconnection
C2: Port capacity
C3: Collocation services
International
destinationsThe operator
manages himself
International
termination
(See ancillary
services)
New
IGW
IGW
International
destinations
Carrier
Preselection
operator A
Carrier
Preselection
operator B
Cxx or Cyy
Main service ~ Call origination
service
New
= call origination
service + number
selection
CYY
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 17 Confidential
Contents
HeadingCorresponding retail
markets
Audiotext service package C17 Value added services
CATS Resale C16.1
International voice
communications
CATS Bitstream C16.2
Bitstream Call-by-Call Carrier
selection (CCS)Cxx
Bitstream Carrier Preselection
(CPS)Cyy
IP Access Service Package C18Internet dial-up
servicesWholesale Virtual Dial Up service C20
Wholesale ADSL Resale service C19.1Internet broadband
servicesWholesale ADSL Bitstream service C19.2
New
Note: new annex numbers are indicated for illustrative purpose
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 18 Confidential
Reminder of the wholesale resale ADSL service (C19.1)C19.2
Omantel’s responsibility IASP’s
responsibility
AAA serverOmantel Network
WWW
C19: Wholesale
ADSL service
User
POI
Request for
authentication
through Internet
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 19 Confidential
Technical chain of the Wholesale bitstream ADSL Access offer
Omantel’s responsibility IASP’s responsibility
Leased line IASPOmantel Network
WWW
C8: leased line
C19.2. Wholesale
Bitstream ADSL service
C3: Collocation services
User
POI
New
New
Internet
connectivity
managed by the
IASP
(see new ancillary
services)
@
C19.2
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 20 Confidential
Creation of new ancillary services
Heading
Point of interconnection C1
Port capacity C2
Collocation services C3
Leased Lines C8
Internet Leased lines (peering) C10
Implementation of number ranges C13
“Invoice” Billing service Cww
Access to the “IN platform” Cxx
Collocation services within the cable
landing stationC3.2
Leasing of submarine cable capacity C8.2
Leasing of international gateway capacity Cyy
Leasing of national switches Czz
New
New
New
New
New
New
Ancillary service available for any
main service addressing postpaid
subscribers (including Audiotext)
Ancillary service available for any
main service addressing prepaid
subscribers (including CATS)
Ancillary services available for any
operator intending to manage
himself the international
connectivity
Ancillary service available for any
operator proposing national voice
services (enables to avoid dealing
with legal interceptions)Note: new annex numbers are indicated for illustrative purpose
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 21 Confidential
Contents
1. Evolution of the scope of Omantel’s RAO
2. Pricing policy of the RAO services
3. Annexes
2.1. Understanding of the regulatory framework
2.2. Approval process of the RAO tariffs
2.3. Current main assumptions of the margin
squeeze test
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 22 Confidential
2 tariffs regulation are possible for wholesale tariffs
Retail minus Cost plus
Reasonable and
non discriminatory
rates
Cost based rates
Note: in the current regulatory framework, the choice between retail minus and cost plus regulation belongs to TRA
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 23 Confidential
Non discriminatory, reasonable and cost based meaning for
wholesale tariffs
Non
discriminatory
Reasonable
• Non discrimination means that Omantel should have a positive
margin if it was buying the RAO to himself, e.g. if “Omantel
retail” was buying to “Omantel wholesale”
• According to the Telecom Act, article 7, “The authority basically aims to accomplish the following:” […] “9. To prepare suitable conditions for competition among the licensees”
• Under these circumstance, “Reasonable” means that the
wholesale rates should enable a new entrant with reasonable
market shares to be profitable
Meaning in Omantel RAO’s context
Cost based • Refers to interconnection regulation
(currently equal to LRAIC costs)
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 24 Confidential
Access
operator
“Bitstream services” correspond technically to “interconnection”
services
Access
operator
Alternative
operator
Interconnection
Traffic
+
control
Phone
Number
Traffic
+
control
Phone
NumberCall origination Call termination
IncumbentSubscriber
Traffic
+
control
Alternative
operator
BitstreamThe alternative operator
• receives both traffic and control
• designs network services
assumed to correspond to
“interconnection services” in
the regulatory framework
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 25 Confidential
Proposal of tariff regulation for RAO services
Heading “Resale” “Bitstream”No margin
squeezeCost based
Audiotext service package C17
CATS Resale C16.1
CATS Bitstream C16.2
Bitstream Call-by-Call
Carrier selection (CCS)Cxx
Bitstream Carrier
Preselection (CPS)Cyy
IP Access Service Package C18
Wholesale Virtual Dial Up
serviceC20
Wholesale ADSL Resale
serviceC19.1
Wholesale ADSL Bitstream
serviceC19.2 New
New
New
New
Update
Note: new annex numbers are indicated for illustrative purpose
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 26 Confidential
Contents
1. Evolution of the scope of Omantel’s RAO
2. Pricing policy of the RAO services
3. Annexes
2.1. Understanding of the regulatory framework
2.2. Approval process of the RAO tariffs
2.3. Current main assumptions of the margin
squeeze test
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 27 Confidential
Key general recommendations
1. Any modification of a retail offer of Omantel should be approved ex ante
by TRA, taking into account that a new entrant should be able to
replicate this offer with the RAO
Especially, Omantel should have to demonstrate that its new retail offer
does not produce margin squeeze
TRA is now able to verify the potential margin squeeze with the price
squeeze model implemented during the project
Same process should be applicable on special offers
2. Volume Discounts on wholesale tariffs may foreclose competition
They could be authorized only if they remain moderate and if Omantel is
able to demonstrate that they generate substantial gains of efficiency
(esp. economy of scales)
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 28 Confidential
Key specific recommendations
Resale services
1
2
3
• TRA should adopt a 3 steps methodology in order to approve the RAO resale tariffs,
such as the DSL resale (C19) or CATS resale (C16) tariffs:
Define the reasonably efficient operator for the resale service
considered: Which level of market shares? Which level of margin?
Estimate the wholesale tariff of the resale service that would enable a
reasonably efficient operator to reach the targeted level of margin
• Verify that the new wholesale tariffs are higher than the costs
• In case wholesale tariffs are lower than costs, then the retail prices
may be increased
1/2
0Ask Omantel to propose a design and tariffs for the new service
(in case a new service is introduced)
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 29 Confidential
Key specific recommendations
2 cases are possible for the step 4 of the process1/2
If the wholesale tariff is
higher than the costs,
then an increase of the
retail tariffs should not
be required
Retail priceWholesale
tariffCost of the
wholesale
service
Step 2
Step 4
If the wholesale tariff is
lower than the costs,
then an increase of the
retail tariffs may be
required
Retail priceWholesale
tariff
Cost of the
wholesale
service
Step 2Step 4
Increase of the retail
price
Omantel does
not cover its
costs
Case 1
Case 2
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 30 Confidential
Key specific recommendations
Bitstream services
• TRA should adopt a 3 steps methodology in order to approve the new bitstream
services, such as DSL bitstream (C.19.2) or international prepaid bitstream (C16.2) :
2/2
1
2
3
Define the reasonably efficient operator for the Bitstream service
considered: Which level of market shares? Which level of margin?
Estimate the wholesale tariff of the Bitstream service that would
enable a reasonably efficient new entrant to reach the targeted level
of margin
Verify that the new wholesale tariffs are cost oriented
0Ask Omantel to propose a design and tariffs for the new service
(in case a new service is introduced)
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 31 Confidential
Contents
1. Evolution of the scope of Omantel’s RAO
2. Pricing policy of the RAO services
3. Annexes
2.1. Understanding of the regulatory framework
2.2. Approval process of the RAO tariffs
2.3. Current main assumptions of the margin
squeeze test
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 32 Confidential
Two scenarios of volumes can be modelled in a margin squeeze
test: the volumes of a reasonably efficient operator or the volumes
of an equally efficient operator
Reasonable tariffs
Non
discriminatory
tariffs
A reasonably efficient
operator (e.g. with the
volumes of an efficient
operator) should manage
to be profitable
An equally efficient
operator (e.g. with
Omantel volumes) should
manage to be profitable
• Part of the costs incurred by the new entrants are fixed. For such costs, the average
costs incurred by the new entrant will depend on the volumes. Therefore, the
assumptions on the volumes of the new entrant are critical in a margin squeeze test
• 2 distinct margin squeeze tests can be implemented that correspond to different
regulatory constrains and to different volumes:
Equally efficient
operator test
Reasonably efficient
operator test
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 33 Confidential
Principle of a margin squeeze test
Wholesale costs
of the alternative
operator with
Omantel RAO
tariffs
Retail revenues
of the alternative
operator with
Omantel retail
tariffs
Alternative
operator Retail
costsAlternative
operator Retail costs
Margin
squeeze
No margin
squeeze
Retail costs also need to be assessed
(Business plan)
1
2
3
• The regulatory framework enables TRA to define what reasonable and non
discriminatory rates are. Since TRA wants to enable the development of efficient new
entrants, a margin squeeze test is the best practice to implement this dimension of
the framework.
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 34 Confidential
Assumptions for the modelling of retail revenues and
wholesale costs
Wholesale costs of
the alternative
operator with
Omantel RAO tariffs
Retail revenues of
the alternative
operator with
Omantel retail tariffs
Omantel volumes
Omantel volumes
=
=
X
X
Omantel current
retail tariffs
Omantel current
RAO tariffs
X
X
Market shares of
a reasonably
efficient new
entrant
Market shares of
a reasonably
efficient new
entrant
2
1
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 35 Confidential
Main assumptions of the margin squeeze model for a
reasonably efficient operator
Alternative
operator Retail
costs=
Subscriber costs
CAPEX
Purchase costs
Common costs
3
+
+
+
Refers to the costs related to the subscribers or
acquisitions (Customer Premises equipment, marketing and
product management, customer care, and bad debt)
Refers to administrative / IT CAPEX and network CAPEX
(for bitstream operators)
Refers to the costs of purchasing wholesale services to
Omantel (assumed to represent a percentage of wholesale
costs)
Refers to the costs of purchasing wholesale services to
Omantel (assumed to represent a percentage of total costs
excluding wholesale costs)
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 36 Confidential
End of the presentation
Thank you for your
attention
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 37 Confidential
Contents
1. Evolution of the scope of Omantel’s RAO
2. Pricing policy of the RAO services
3. Annexes
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 38 Confidential
DSL services - Assumptions on the subscriber costs
Residential
Yearly costs (/subscriber)
Customer Premises Equipments (one shot per new add) 12
Marketing & Product Management 3
Customer care 3
Website -
Payment recoveries & Bad debts 12
Business
Yearly costs (/subscriber)
Customer Premises Equipments 12
Marketing & Product Management 49
Customer care 4
Website -
Payment recoveries & Bad debts 124
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 39 Confidential
Internet dial-up services - Assumptions on the subscriber costs
POSTPAID customers
Yearly costs (/subscriber)
Customer Premises Equipments -
Marketing & Product Management 6
Customer care 3
Website -
Payment recoveries & Bad debts 18
PREPAID customers
Retail price (as % of average price) 125%
Marketing & Product management (as % of retail revenues) 5%
Customer care (as % of retail revenues) 3%
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 40 Confidential
CATS resale and bitstream - Assumptions on the subscriber costs
Marketing & Product management (as % of retail revenues) 5%
Customer care (as % of retail revenues) 3%
Ref : 2009-AF-NG-TRA Oman-Presentation_020908 41 Confidential
Other assumptions
Bitstream products Resale products
DSL bitstreamInternet Dial Up
Bitstream
Prepaid int.
BitstreamDSL resale
Internet Dial Up
Resale
Prepaid int.
Resale
CAPEX 20 000 20 000 30 000 10 000 10 000 5 000
Administration/IT CAPEX 20 000 20 000 20 000 10 000 10 000 5 000
Network CAPEX (including IGW) 10 000
• CAPEX assumptions:
• Purchase costs: 5% of the wholesale costs
• Common costs: 6.7% of the total costs excluding wholesale costs